Question

1. Service Department Charges

   In divisional income statements prepared for LeFevre Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $82,464, and the Purchasing Department had expenses of $35,990 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records:

   		Residential		Commercial		Government Contract
   Sales		$752,000		$997,000		$2,289,000
   Number of employees:
   	Weekly payroll (52 weeks per year)	240		65		70
   	Monthly payroll	28		39		26
   Number of purchase
   	requisitions per year	2,600		1,800		1,700

   a. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division.

   	Residential	Commercial	Government Contract	Total
   Number of payroll checks:
   Weekly payroll
   Monthly payroll
   Total
   Number of purchase requisitions per year:

   b. Using the activity base information in (a), determine the annual amount of payroll and purchasing costs charged back to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. If required, round your answers to two decimal places. Do not round your interim calculations, round your answers to two decimal places, if required.

   Service department charge rates:
   Payroll Department	$ payroll distribution
   Purchasing Department	$ per requisition

   	Residential	Commercial	Government Contract	Total
   Service department charges:
   Payroll Department	$	$	$	$
   Purchasing Department
   Total	$	$	$

   c. Residential's service department charge is   than the other two divisions because Residential is a   user of service department services. Residential has many employees on a weekly payroll, which translates into a   number of check-issuing transactions.

Answer 1

Answers

[a]

	Residential	Commercial	Government contract	Total
No. of payroll checks:
Weekly Payroll [no of employees x 52]	12480	3380	3640
Monthly payroll [no of employees x 12]	336	468	312
Total	12816	3848	3952	20616
No. of purchase requisititon per year	2600	1800	1700	6100

[b]

	Cost	Allocation base	Service Department charge rate
Payroll Department	$                 82,464.00	20,616	$                    4.00	per payroll distribution
Purchasing Department	$                 35,990.00	6,100	$                    5.90	per requisition

	Residential	Commercial	Government Contract	Total
Service Department charges:
Payroll Department	$                 51,264.00	$          15,392.00	$          15,808.00	$        82,464.00
Purchasing Department	$                 15,340.00	$          10,620.00	$          10,030.00	$        35,990.00
Total	$                 66,604.00	$          26,012.00	$          25,838.00	$      118,454.00

[c]

Residential's service department charge is HIGHER  than the other two divisions because Residential is a  LARGER user of service department services. Residential has many employees on a weekly payroll, which translates into a MORE or LARGER  number of check-issuing transactions.